Compliance February 23, 2007

U.S. Supreme Court Turns Away Dow COLI Appeal

February 23, 2007 (PLANSPONSOR.com) - The U.S. Supreme Court has left standing a ruling that denied Dow Chemical Company's efforts to get tax deductions for interest it incurred on loans that paid for corporate-owned life insurance policies (COLI).
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The 6 th  U.S. Circuit Court of Appeals in January 2006 declared that Dow can’t take the tax deductions because its COLI program amounted to an economic sham that was properly disallowed by the Internal Revenue Service (IRS) (See Dow Loses COLI Legal Battle ).

The appellate court overturned a ruling by U.S. District Judge David M. Lawson of the U.S. District Court for the Eastern District of Michigan in Dow’s favor.

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According to the court documents,Dow purchased COLI policies from Great-West Life Assurance Co. on the lives of 4,051 employees in 1988. In 1991, Dow purchased COLI policies from Metropolitan Life Insurance Co. on the lives of 17,061 employees.

Dow paid premiums either by borrowing money from Great-West and MetLife, using the cash values of the policies as collateral, or making partial withdrawals from the unencumbered cash values of the policies.

Between 1988 and 2000, Dow paid $377,062,000 in premiums and $131,986,000 in interest to Great-West. From 1991 to 2000, Dow paid $849,890,000 in premiums and $239,371,000 in interest to MetLife.

In the taxable years 1989 to 1991, Dow claimed on its federal tax return deductions totaling $33,004,360 for interest paid on loans used to pay the COLI premiums.

IRS determined that the COLIs were economic shams, threw out the deductions, and imposed tax deficiencies and interest of $22,209,570. The company appealed unsuccessfully to the IRS and then sued the government to get back the $22 million.

The 6 th  Circuit ruling in Dow Chemical Co. v. United States,U.S. , No. 06-478, cert. denied 2/20/07 is  here .

Benefits February 22, 2007

Garden State Worker Contract Includes Pension, Health Givebacks

February 22, 2007 (PLANSPONSOR.com) - A tentative agreement with the largest union for New Jersey state workers calls for employees to pay 1.5% of salary toward their health premiums, pay more for their pensions and more for doctors' visits and prescription drugs.
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The deal between the administration of Governor Jon Corzine and the Communications Workers of America (CWA) also includes an increased retirement age to 60 for new workers, according to a Gannett News Service report.

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In return, union workers won pay raises that compounded, total 13.6% over the next four years and avoided drastic cuts to their existing retirement benefits, according to the report.

While teachers negotiate their benefits with individual school districts, their union, the New Jersey Education Association (NJEA), has also agreed to accept increased pension contributions and new penalties for educators who retire before turning 60.

According to the news report, the health care payments and pension contribution increase, from 5% of salary now to 5.5%, affect all workers.

The union givebacks are expected to save the state more than $100 million in the next fiscal year and hundreds of millions a year by 2022.The pension reforms are expected to save $475.5 million per year beginning in 2022, according to the administration.

For the average CWA worker, who currently earns about $50,000, the salary increases could total roughly $16,300 over the four-year contract. Increased health care and pension costs, above the existing contract, would cost $4,300, or roughly 27% of the total raise, the news report said.

The deal avoids cuts in pensions and state holidays that were recommended by some lawmakers.

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